Can New Products Save 3Com?

"3Com has been through many ups and downs," says founder Bob Metcalfe, who is now a venture capitalist. "It has good DNA, even if I do say so myself. I am confident that it will get to its next up. I'm rooting for the team, obviously."

Unlike past years, there's good reason to get behind 3Com: It has superior products, a solid group of people (both management and worker bees) and a new vigor and will to live. CEO Bruce Claflin believes he has laid to rest the question of whether his company will survive (see "VARBusiness Interview: Bruce Claflin," page 26). It's a far cry from two years ago when his chief concern was bankruptcy. Now Claflin spends more time thinking about acquisitions than he does about Chapter 11.

"We are spending much more of our time on how to build a thriving institution, whereas a year and one-half ago it was how to survive the downturn," he says.

That's not to say that 3Com lacks challenges. Cisco just about owns the networking market, and Linksys and others are coming on strong from the low end. "It's hard to beat Cisco at this point for enterprise customers," says Judy Estrin, who worked for 3Com in the late 1980s and was the former CTO of Cisco before becoming head of Palo Alto, Calif.-based Packet Design, a new company working to improving network performance. "The networking industry is not a new industry anymore."

Some of the ups are quite notable. 3Com was one of the first to get into networked appliances. It was the first to understand and extend Ethernet, and to continue to innovate with the smallest fully managed network switch around. It has bought and sold key players in the networking industry,not as numerous as Cisco's acquisitions, but significant ones nonetheless. It was one of the first computer vendors to recognize the channel, while others back in the early '80s were selling direct. In fact, 3Com took first place in the networking hardware category of the 1999 VARBusiness Annual Report Card, receiving the highest score in the products/pricing and partnership subcategories.

However, some of the downs are just as notable and one of the reasons 3Com seems to have had nine lives. A good case in point is what happened to 3Com in the late '80s: While IBM and Microsoft battled it out over their stillborn OS/2 operating system software, 3Com was actually selling gobs of LAN Manager (which it co-developed with Microsoft). That software was a precursor to today's modern Windows network servers, and the basis of what Microsoft will roll out, hopefully next year, with .Net server. Novell, however, beat them at the network-server game handily, partly because of its better product.

It was the first of many dark moments for 3Com: "At our first joint press conference," Metcalfe says, "we found ourselves arguing with Microsoft about whether to call it the Microsoft-3Com LAN Manager, the Microsoft LAN Manager co-developed by 3Com, or the OS/2 LAN Manager by Microsoft with 3Com in the general vicinity." 3Com eventually sold more copies of the product than IBM, until Microsoft cut in by selling its own version, causing 3Com to write off tens of millions of prepaid royalties when sales evaporated.

At various points in its corporate history, 3Com has been a competitor and/or compatriot to most of the major players around, including Cisco, IBM, Microsoft, Novell and Sun, and others who have come and gone, and are now just memories in the computer industry. During the late '80s, for example, Novell was 3Com's largest distributor of Ethernet cards, until 3Com decided to cut off Novell. That turned out to be a bad move, as Novell was only too happy to point its customers toward less expensive alternatives. Another life lost, perhaps?

But, unlike Enron, PSInet, and other high-flying companies that bought the rights to ballparks around the country and have since faded into dust, 3Com,which once, too, had a diamond that bore its name,may just be able to hit another home run.

No company has done as much for networking since what could be called the first "year of the LAN" when 3Com was founded in 1979. For example, the first network appliance came out in the mid '80s: It was the 3Server3, a "headless" file and print server in a small form factor that was almost plug-and- play. It was arguably way ahead of its time, with built-in Ethernet and hard disk. The device preceded by more than a decade the current crop of network appliances, and did so well before 1U and gigabit networks were even invented.

Speaking of invention, 3Com has been at the nexus of many important networking technologies, either by happenstance or by its own purposeful acts. Ethernet was literally invented there (see "Ethernet Invented Here," page 34), and 3Com has always been the keeper of the Ethernet flame and faithful, expanding on the original 10-Mb to the current 10-Gb technology.

The company has had its corporate hand in Palm Computing, having bought and then spun off the company that pioneered PDAs. It was an early player in network routers and Layer 2 switches (then called bridges), buying pioneering company Bridge Communications (one of the founders was Estrin). And it owns the US Robotics modem line,at one time the dominant force behind modems (see "3Com Milestones," this page). However, modems have since become a commodity product, with limited profit potential. And Palm's corporate culture never meshed well with 3Com's.

No currently operating company has managed to reinvent itself as often as 3Com. Nor has any acquired so much intellectual property (the company holds 800 patents and has more than 1,000 patent-pending applications,impressive in these down-market days, to be sure) from so many separate companies, outside of IBM, Microsoft and a few others.

And yet, 3Com may be one of those Rodney Dangerfield companies: It don't get no respect. Its stock trades at $4 a share, down from the spectacular glory days of the dot-com boom when its then-Palm subsidiary was valued more than the rest of the company, and the stock was trading in the high double digits. It is in second place to Cisco in terms of network core switch gear, and still near the top for Ethernet adapters and modems. While sales are down 22 percent in the last quarter,to just more than $300 million,the company has stemmed the flow of red ink considerably.

In keeping with the reincarnation theme, the company continues to have its share of loyalist VARs and solution providers.

"3Com products in networking always seemed to me to be inexpensive, totally compatible and reliable," says Mark Lillie, a long-time IS manager, consultant and now director of client services for Hamden, Conn.-based health-care consultancy HSS. "They are always my default choice when I am involved with purchases. 3Com represents today's version of the old IBM adage in networking for me: No one ever got fired for buying 3Com."

And 3Com may have a better shot at the small-to-midsize sector, according to Packet Design's Estrin. "Cisco has been very effective in the enterprise, but sometimes it's hard to have the same products that can scale and still have enough simplicity for small and medium businesses."

Is 3Com poised for growth? We think so. The latest portfolio of products is exciting and shows signs of renewal. Its partner programs have been reenergized, and it's once again taking leadership in many key networking areas. CEO Claflin tells a compelling story.

But at the heart of the company are its innovative products. As a guide, here is our take on what to look for in the 2003 vintage of 3Com and our favorite technologies that we recommend you should be selling,or at least paying attention to.

Network Jack (3Com Product #3NNJ200)

Perhaps the most interesting network product sold by anyone in 2002 is Network Jack. It looks like a cross between a wall outlet and a hub. Inside a standard outlet form factor is a complete, managed four-port 10/100 switch. Think of it as a network extension cord, to support multiple computers in a single office location. Given the proliferation of network-attached devices in the average office, the Network Jack is like manna from heaven.

"This is having a manageable device as close to the user as we can get," says 3Com product manager Jeff Day. The only downside is that it requires its own power, either from the main AC wall plug, or via a new power-over-Ethernet standard that transmits power over the unused twisted pairs of the actual Ethernet cabling itself.

It is both ingenious and useful, and with the right solution provider can amount to a mint of money. Why? Several reasons. First, the Network Jack can extend networks without having to rewire an entire building. It's especially useful in schools and other old buildings, where pulling cabling would be expensive, time-consuming and disruptive.

"Most of our schools only have one or two connections per classroom," says Shaun Steele, a sales manager with integrator ValCom, Itasca, Ill. "The Network Jack helps us hang more devices and ports, including IP phones." Second, the Network Jack is a cleaner and more easily supportable solution than hooking up a hub or a switch in a user's office,these hubs have a tendency to disappear or get kicked around. Finally, it places a relatively inexpensive managed hub literally as close to the end user as physically possible, and it is a managed hub that isn't going to walk away because it is literally screwed into the user's office wall. Network administrators that want better control of their networks, and to keep track of where their users are and what they are doing, can benefit from this kind of gear. "Once our customers understand what this is, the vision isn't difficult to sell at all, and we have sold literally thousands of them," Steele adds.

Managed Firewall on a Card (3Com Product #3CRFW200)

There is an increased need for firewalls these days, especially as network penetrations and port scans continue to climb. And so 3Com has a zero-footprint firewall,Firewall Desktop PCI Card with 10/100 LAN,that comes with a standard network adapter and some software. While others have similar products, including Boca Raton, Fla.-based OmniCluster Technologies, the 3Com solution is elegant and relatively simple, making it easy to install a firewall on just about any standard Windows server, offering great network protection.

Why is this a big deal? Mainly because traditional firewalls only protect the perimeter of an enterprise's network, and while such protection is essential, it is incomplete. Attacks can occur from within, or networks can be easily compromised via wireless gateways, dial-up modems and weak administrative accounts. 3Com's firewall on a card makes it easier to distribute network protection where it is needed,on the actual servers themselves that hold critical corporate data. It also blocks attacks before they can reach the OS or any application, an important feature given the recent Bugbear worm that could turn off software-based firewalls on the sly. And by making the product relatively inexpensive at $179, solution providers can sell bunches of these units and make a tidy profit on setting them up around a company's network. "We had one VAR who sold $4,000 worth of services on less than $2,000 worth of hardware because of this product," says 3Com's Day. "There are real financial incentives to VARs with this firewall on a card."

SuperStack 3 NBX PBX And Phone Sets

IP telephony is taking off, and 3Com is certainly one of the major players. Its line of NBX gear is a full-service line that is expandable up to 720 lines and 1,500 devices and includes both shared and switched IP phone sets and PC software that can turn a computer into a desk phone.

"VARs are making more money with our NBX line than anywhere else," says Dave Smith, vice president of Americas sales for 3Com. "The channel has embraced this line because of the high margins, and we're seeing double-digit growth."

Xjack PC Card Adapters (3Com Product #3CRWE62092B)

One of the many companies that 3Com has purchased is Utah-based MegaHertz, the inventors of the Xjack PC card connector. Laptop users have always had love-hate relationships with their PC cards: While useful, the little connectors that attach the cards to the outside world can easily get lost or forgotten. The Xjack solves this problem, since the connector is permanently attached to the PC card itself.

In the case of PC card modems, the Xjack contains an RJ-11 connector that pops out of the card body so that the phone cord can slide in vertically. For network PC cards, it is an RJ-45 connector. And for wireless network PC cards, the company's latest Xjack technology is an antenna that can extend beyond the frame of the laptop's case. The antenna has a smart switch that allows the PC card to go into power-save mode and save battery life when the antenna is retracted and provides better reception when the antenna is extended.

It is a little thing, to be sure, but an important one. And the Xjack keeps users from having to replace their connectors when they most need them, but then moves out of the way when the PC card isn't in use.

That's just some of the innovation going on at 3Com, and some of the reasons the company is poised to make a comeback.